In The boardroom: New Safety Guidelines Eluding Smaller Banks, A

Many community banks and thrifts may not be in full compliance with sweeping safety-and-soundness guidelines implemented earlier this year, a Michigan bank consultant says.

And Richard B. Foster Jr. wants to make sure those community bank directors know about them.

"In general, when there are new rules, the large banks assign a vice president" to handle them, said Mr. Foster, president of BanConsult Inc., Okemos, Mich. "The small banks don't have that luxury and are likely to let it slip."

Required by the Federal Deposit Insurance Corp. Improvement Act of 1991, the new guidelines became effective this summer.

Numerous standards were put into place to ensure that a bank does not fail. They include internal controls to make sure a bank doesn't take on too much risk, loan documentation and credit underwriting rules, advisable levels of asset growth, compensation and benefits guides, even securities valuation.

But at two recent seminars he conducted, Mr. Foster said none of the bank directors raised their hands when asked if they knew about the regulations. "I don't want the bank directors to be embarrassed," he said.

He suggested that bank directors should "insist that their management immediately review each of the areas in the rules and determine their institution's compliance with written procedures."

However, regulators said the guidelines were not radical changes to previous procedures.

And spokespeople for the FDIC, the Office of the Comptroller of the Currency, the Office of Thrift Supervision, and the Federal Reserve said examinations so far have not uncovered any compliance problems.

"We anticipated when we put this out that almost all savings associations were already in compliance with these safety-and-soundness standards," said OTS spokesman Paul Lockwood. "And that has been what we've found with examinations."

Mr. Foster concedes that community institutions have many of the procedures in place, but maintains that "the regulators will find examples" to hold up of those that don't.

A regulator who believes that an institution does not meet a standard can require implementation of a compliance plan, according to the guidelines. Future recourse includes ordering a correction of the problem and instituting a suit or fine against the bank.

To avoid micromanaging institutions, however, the guidelines govern what should be done, but not how to do it.

"I don't really see that as an issue," said Emily McNaughton, an OCC spokeswoman. "We did that on purpose to give banks maximum latitude."

But some observers say that such vagueness could spell trouble later that directors can't do much about now.

David H. Baris, executive director of the American Association of Bank Directors, has been educating his group's 1,000 outside bank director members about the new rules. He said the rules are so general that "it's not hard to comply with them. The difficulty is knowing what the agencies will be thinking," he said.

"With the economy having improved over the past several years ... there are very few institutions that are in significant difficulty. Once there is another recession and institutions begin to suffer losses, these powers will be in place."

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